Commodities. Oil and Gold Daily - August 7, 2017

> US rig count and strong employment data push Brent above $52. Front-month Brent once again dug its way out of the sub-$52/bbl level, rising from the intra-day low reached midday of $51.5/bbl to settle at $52.42/bbl, up $0.41/bbl on the day. Price gains were at first spurred by the US jobs report showing better than expected job additions together with a y-o-y increase in hourly earnings. This is bullish for the oil market, as it implies strong end-user motor fuel consumption at a time of year when it is especially needed, as US refineries are running at seasonal highs (and also historic highs), meaning that demand needs to be high to avoid overstocking. Given the fact that gasoline stocks fell for a seventh week in a row last week and that employment and motor fuel data are strongly linked, upward revisions for 2H17 demand growth from the EIA, OPEC and IEA may be forthcoming this week. The EIA's Short-Term Energy Outlook will be published at 19:00 Moscow time tomorrow, while the OPEC monthly report is expected at 13:00-14:00 on Thursday and the IEA monthly report at 11:00 on Friday.
Friday's Baker Hughes rig count report showed a one-unit drop to 765 in active oil rigs in the week to August 4, which also provided support for oil prices. The data was encouraging for oil bulls in the longer run, as it further confirms the trend of slowing rig additions that began five months ago. The rig count is considered to be an early indicator of production trends further down the line. The average pace of rig additions has been on a steady downtrend, from 11 in March, 9 in April, 6 in May, 5 in June, 2.5 in July and now a drop of one unit in the first week of August.
Front-month Brent has remained stuck within the $51-53/bbl range since late July, but we think that it has a chance to break above this level this week, especially on tomorrow's EIA report, for which we expect a downward revision to the previous estimate of 9.43 mln bpd in weekly US crude oil output. We also expect US inventory data to drive the price higher this week on strong draws in crude and refined products with lower w-o-w OPEC imports for the first time since early July. We also do not expect the technical meeting in Abu Dhabi today and tomorrow to cause major short-term price shifts, although in the longer run it might induce better compliance. Discussions are likely to be limited to the accuracy of assessments by secondary sources (which OPEC uses to monitor compliance) rather than self-reported figures.
> Strong US jobs data revives chances of another Fed hike this year, pressuring gold. Gold suffered heavy losses on Friday. The US July employment report exceeded expectations, pushing bullion down almost $15/oz to $1,255/oz, a level last seen in late July, before the weaker than expected 2Q17 GDP reading propelled the gold price to $1,270/oz. Nonfarm payrolls rose by 209,000 in July, beating the Bloomberg estimate by 25,000, while average hourly earnings were up 2.5% y-o-y, exceeding the 2.4% consensus forecast. The upbeat data quickly resurrected hopes of a third Fed rate hike this year, pressuring non-yielding assets. The tightening labor market and growing wages should create upward pressure on inflation and GDP growth. So far there have not been clear signs of this pressure, which is one of the reasons the Fed became more dovish at its most recent meeting. The PPI data on Thursday and CPI data on Friday this week will provide further insight for the Fed on the state of the US economy and the need for a rate hike, so it should help determine the outlook for gold prices for the rest of August. With the employment data pinning gold below $1,260/oz for the time being, it is hard to see it returning to another test of resistance at $1,270/oz this week, unless there is a strong pickup in geopolitical uncertainty.